RadicallyCentered

Occassional reflections of a moderate (hey at least I think I am)

Friday, June 24, 2005

What happens if credit card rates do not decrease as a result of the bankruptcy law?

Prof. Zywicki is revisiting the bankruptcy reform act and, specifically, its impact on credit card interest rates. He notes that after the law was passed credit card rates “shot up above those for personal loans” for the first time since the rates have been tracked by the source he uses. He points out that this discrepancy might be (is likely?) caused by the fact that many portions of the law do not take effect until later this year and that there has been a surge in bankruptcy filings by folks trying to get treated under the prior law.

He concludes by saying “if economic theory holds equally well once the law takes effect, we can expect lower credit costs in the long run.” He, of course, is correct with a few caveats. Most notable among these is that there needs to be real competition among the credit providers and that they will not act like a cartel. In any event, this is an empirical question (though I am not convinced the “personal loans” rate vs. “credit card” rate is the proper comparison) which we will have an answer to in six months and from there on out.

One thing I am curious about is: What happens if credit card rates do not decrease as a result of the bankruptcy law?

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